Tax credit errors spur calls for audits

Scott Calvert, The Baltimore Sun

City and state lawmakers called Monday for stepped-up scrutiny of property tax credit programs in Baltimore, after a Baltimore Sun investigation found that chronic errors have cost the city millions of dollars in lost revenue, despite warnings stretching back more than a decade.

"There should be an audit of both the state and city side," said City Councilman Carl Stokes, chairman of the taxation committee, who called on the city's elected leaders in Annapolis to become involved.

Del. Samuel I. Rosenberg, vice chairman of the House Ways and Means Committee, asked the state Office of Legislative Audits to examine the repeated mistakes made by the state assessments agency in calculating the city's historic property tax credit.

"It's essential that government do things right," said Rosenberg, a Baltimore Democrat. "If you are providing these benefits, they should be distributed consistent with the law. If mistakes are made, that's not the case."

Over the weekend The Sun published an investigation documenting chronic mistakes in the city's historic credit program, which offers property tax breaks for historic renovations. For years, errors that began at the state Department of Assessments and Taxation went undetected by city finance officials when they issued property tax bills.

In the program's 10 largest tax breaks, The Sun found seven with errors totaling around $2 million in uncollected city taxes. City and state officials insist that most credits have been correctly calculated, but they offered no evidence and have acknowledged the errors uncovered by The Sun. The owners of nearly 1,200 properties citywide currently receive the credit.

All told, The Sun has found that the city lost out on more than $12 million in potential tax revenue over the past several years because of a range of problems, including lax oversight of the homestead tax credit and the state's undervaluing of unsold waterfront condos.

Rosenberg said he's worried about the cumulative impact on the city's already rocky finances. "I want to see what the auditor says," he said. "Are these systemic things? How can they be addressed?"

MayorStephanie Rawlings-Blake's office would not comment or answer questions Monday. Instead, spokesman Ryan O'Doherty pointed to a statement released Sunday that said the mayor thanked the City Council for rejecting a proposal to cut funding for greater auditing of property tax credits.

As a result, the statement said, new money "to audit erroneous tax credits" stayed in the proposed budget, which the City Council approved Monday. "Rather than sweep decades-old problems under the rug, we are confronting them head-on," the mayor said in the statement.

The mayor's budget contains money to hire two new staff members for the "billing integrity program," a Finance Department initiative to ferret out property tax credit violators. Since its launch last year with one employee, the city says, the program has identified $4 million owed the city because of erroneous credits and exemptions given by the state.

While the mayor would not comment, her spokesman made a point of criticizing Stokes after hearing that he was calling for an audit.

"I'm sure you are aware that just last week, Councilman Stokes voted to cut the specific funding needed to increase auditing of City and State property tax credits through the Mayor's new billing integrity program," O'Doherty wrote in an email.

Stokes supported an amendment that would have cut salaries for the two new positions by a total of $50,000, to about $280,000. The savings were intended to go to the city's beleaguered recreation centers.

City Council PresidentBernard C. "Jack" Youngsupports Stokes' push to get to the bottom of the tax credit problems, said Lester Davis, Young's spokesman. "Any time you have situations where you're missing out on much-needed tax revenue, that really is cause for concern," Davis said.

Del. Keiffer Mitchell said many members of the General Assembly would cheer an examination of how the state's handling of tax credits might have deprived the city of revenue, given widespread resentment of the city in Annapolis.

"This would be welcome among the jurisdictions that kind of see Baltimore as a drain on state finances," he said.

Mitchell, a Baltimore Democrat, said he found it "troubling" that top city finance officials received an internal memo in 2001 alerting them to calculation errors with the historic credit — the same kinds of errors The Sun found still occurring. "The warning signs were there," he said.

Key players from the era remain involved in the tax credit programs. The memo said that city officials had pointed out the errors to Owen C. Charles, who at the time ran the state agency's city office and is now the agency's No. 2 official. Among the memo's recipients was Henry J. Raymond, then an official in the city Finance Department and now its deputy chief.

Stokes said the 2001 memo, reported by The Sun, "knocks me off my feet."

"Certainly if you got a memo saying, 'Hey, here's some alarming numbers,' you would just dig in and fix it," he said. "Or at least stay on top of it yearly — watch it and check and double-check."

Raymond hasn't explained why the Finance Department was not more vigilant, saying only that his department performs periodic audits "when resources permit and corrects erroneous credits when identified."

Under city regulations, the historic credit applies just to the value of improvements. But in some cases the state based the credit on the rising market value of the entire home.

In addition, projects costing more than $3.5 million are entitled to only a portion of the credit. Yet for some properties, the state neglected to reduce the credit properly, giving those owners a larger tax break than the law allows.

Charles has attributed the mistakes to "clerical error" and to glitches introduced three years ago when the city and state began using computerized spreadsheets to shorten processing times. Last week, Charles expressed regret for the state's errors, pledging to fix erroneous credits and compute discounts correctly in the future.

Raymond, who has acknowledged the city's role in the problematic spreadsheet endeavor, said the city would issue revised tax bills once the state corrects any erroneous credits. Starting July 1, he said, his department will assume oversight of the historic credit program and will "consistently" monitor credits.

But City Councilman James Kraft said the revelations over the past several months show that it's time for a thorough examination of Finance Department operations.

"Needless to say, this entire situation continues to get more and more distressing," Kraft said. "We've got to find out what's going on here."